8 November 2007

Novolipetsk Steel (NLMK) and TBEA, the Chinese transformer producer, to create a service centre

Novolipetsk Steel, NLMK (LSE: NLMK), the leading Russian steel producer, announced today that it has entered into an agreement with Tebian Electric Apparatus Stock Co., Ltd (TBEA), the Chinese transformer producer, to create a joint Russian-Chinese service centre to process and sell electrical steels. Whithin the framework of the Second Russian-Chinese economic forum held in Moscow, the agreement was signed by the CEO of NLMK and Chairman of the Board of Directors of TBEA.

According to the companies’ plans, the joint venture “TBEA – NLMK (Shenyang) Metal Product Co. Ltd” will be created in the city of Shenyang, Lyaolin province, China. The joint venture will offer metal processing (cutting of steel coils) and distribution of grain-oriented and non-grain-oriented steel originated from NLMK. In the future, the business activities of the joint venture may expand to include cutting-to-length and production of cores for transformers and electricals.

The agreement signed by the companies lasts for 20 years.

Total investment into the project amounts to USD12 million. Both companies will own a 50% interest in the joint venture. NLMK will finance the acquisition of its interest out of existing cash funds.

The agreement is of strategic value to both parties. NLMK will obtain an opportunity to strengthen its positions in China, the largest and strategically important world market, consuming nearly 30% of the global grain-oriented steel production, while TBEA will receive a stable supplier of the most important material necessary for manufacturing transformers. Both parties expect the project to be highly profitable.
Signing of the agreement was organized under the auspices of RUSTEEL Co, Ltd, a strategic partner of NLMK.


About Novolipetsk Steel (NLMK) -
Novolipetsk Steel is one of the largest steelmaking companies in Russia and in the world, with annual steel production of 9.1m tonnes. NLMK is among the world’s most profitable steel companies, with an EBITDA margin of more than 40%.

After the acquisition of VIZ-Stal in August 2006, NLMK became one of the largest grain-oriented (GO) steel producers in the world. The total GO steel production volume of VIZ-Stal and NLMK’s Lipetsk site is 320,000 tonnes per year.

GO steel is primarily used in the electrical industry for the production of a wide range of transformer cores. GO steel has a thickness of 0.23–0.35 mm and thermostable insulating coating. NLMK is also producing special purpose GO steel with the thickness of 0.15–0.80 mm.

About Tebian Electric Apparatus Stock Co., Ltd. (TBEA)
Tebian Electric Apparatus Stock Co., Ltd. (TBEA) is the largest transformer producer in China and the first company in the Chinese transformer production industry to go public. TBEA is known worldwide as a steel producer of electrical equipment for transmission, conversion and distribution of the electric power. The company’s product mix includes transformers, telecommunication and high-voltage cables, insulating materials and other products. TBEA sells its products to more than 60 countries, including the USA and European Union. TBEA’s transformers are used in all major energy projects in China: SanXia – the largest hydro-electric power station in the world, “West to East electric power transmission”, “railroad electrification project in China”, “hydro-electric power station LongTann”, etc.

About RUSTEEL Co.,
RUSTEEL is a steel trading and service company operating in the Russian and South-East Asian markets. RUSTEEL is the first foreign company that has obtained permission for independent import sales of GO steel to the Chinese market. This status enables RUSTEEL to reduce transportation costs and delivery times for end-consumers.


NLMK and VIZ-Stal exports to China
NLMK is a long-term supplier of GO steel to China. NLMK’s total export sales of GO steel to China over the 2002 – 2007 period amounted to over 240,000 tonnes, with a value of USD465 million. VIZ-Stal sales of GO steel to China for the corresponding period were 146,000 tonnes, with a value of USD230 million. NLMK and VIZ Stal’s combined sales of GO steel represented approximately 70% of total Russian steel export sales to China in 2006. Despite the general trends in the Chinese steel market, the demand for GO steel continues to grow. The primary reason is the fast growth of the electrical equipment industry in China, which outstrips the GO steel production growth rate